For the third year in a row, the IRS has left the maximum employee 401(k) contribution limit at $18,000 per year. The maximum contribution for 2017 is virtually unchanged from 2016 and 2015.
The situation is the same with catch-up contributions. Those represent the additional amount of contributions that you can make to a 401(k) plan if you are age 50 or older. For 2017, that number remains at $6,000, which is also the same as the catch-up contributions in 2016 and 2015.
Everything you need to know about 401k contribution limits for 2017:
Every year, in October, the 401(k) contribution limits are review, and – hopefully – recalculated higher based on inflation.
Contribution limits increase more during years when the inflation rate is higher, and less when it is lower, as it has been in the past few years. At times, there have even been concerns that the contribution limits might be reduced, based on a negative inflation rate.
Fortunately however, that scenario has never played out, and the limits have either been increased slightly, or left flat.
Why Are There No Increases in the Contribution Limits?
The short answer is that the annual increases in the Consumer Price Index (CPI) have been very small, like on the order of 2% per year. And since Congress prefers to increase contributions in increments of at least $500, the small percentage increases in the CPI on a yearly basis don't reach that threshold.
Of course, if we say 2% inflation per year for the past three years, we are really looking at an accumulated increase in the CPI on the order of 6%. Based on contribution limits of $18,000, this should have translated into a $1,000 increase since 2014.
However, since an increase in 401(k) contribution limits will reduce workers taxable incomes, Congress is also reluctant to respond to such changes, in an effort to keep tax revenues flowing in.
But the 401(k) contribution limits are what they are, and despite an absence of increases over the past three years, they still represent very generous limits, and can help you accumulate a substantial retirement nest egg.
The 401k Contribution Limits for 2017
The chart below shows the base 401(k) maximum contribution, the catch-up contribution for employees age 50 and older, and the maximum allocation from all tax-sheltered retirement plans, from 2008 or 2017.
As you can see, the rate of increase over the past nine years has typically moved at a snail's pace. There has been only a $2,000 increase in the maximum contribution since 2008, and an increase of just $1,000 in the catch-up contribution over the same space of time.
And as you can also see, contribution limits have stagnated in the past, such as 2009 through 2011, when they remain at $16,500 for three years in a row. Even more obvious is the lack of increase in the catch-up contribution for a full six years, when the amount remained at $5,500 from 2009 through 2014.
However, pay attention to the fact that the maximum allocation – which is the total amount that you can contribute to all types of tax sheltered retirement plans in any one year – has increased substantially.
From 2008 through 2017, the maximum increased from $46,000 to $54,000. That's an increase of $8000 over nine years, which works out to be about 2% per year. This may be the most important statistic in the 401(k) contribution matrix, and were going to spend more time on that in a little bit.
| Year | 401(k) Maximum | Catch-Up Contribution | Maximum Allocation |
|---|---|---|---|
| 2014 | $17,500 | $5,500 | $51,000 |
| 2013 | $17,500 | $5,500 | $51,000 |
| 2012 | $17,000 | $5,500 | $50,000 |
| 2011 | $16,500 | $5,500 | $49,000 |
| 2010 | $16,500 | $5,500 | $49,000 |
| 2009 | $16,500 | $5,500 | $49,000 |
| 2008 | $15,500 | $5,000 | $46,000 |
The Contribution Limits Also Apply to Roth 401(k) Contributions
Contribution limits for Roth 401(k) contributions are the same as they are for traditional 401(k) contributions. That means you can contribute up to $18,000 per year to either a regular 401(k) plan, or a Roth 401(k) plan. More likely, you will want to contribute to both, in which case you'll have to allocate how much of the $18,000 limit will go into each part of your 401(k).
More from GFC, Below
Not coincidentally, the 401(k) limits are virtually the same as the limits for both the 403(b) plan and the Thrift Savings Plan (TSP).
In addition, any employer matching contributions to the plans are not included in the employee contribution limits listed above. Your employer can contribute a matching contribution that exceeds the $18,000 regular contribution limit, or even the combined $24,000 limit if you are age 50 or older.
Rather than Fretting Over the Lack of Increase in the Contribution Limit…
For most workers, the flat or level 401(k) contribution limits over the past three years isn't the real problem. The real problem is a lack of employee participation. A large percentage of employees do not participate in a 401(k) plan, even though one is offered by their employer.
Note also that the median value of a 401(k) plan nationwide was just $18,433 in 2015, which means that 50% of employees have more than this number in their 401(k), but 50% had less. That represents a single year of regular contributions, plus a little bit of investment income earned on it. Clearly then, 401(k) contribution limits are not the real culprit here.
Despite the fact that contribution limits have not been increased in three years, $18,000 still represents a lot of tax-deferred savings potential. Do what you can to get as close to the maximum contribution possible, especially as you move closer to retirement.
Taking Advantage of the Maximum Allocation
The biggest number on the chart above for each year is in the Maximum Allocation column. That is the maximum amount of money that you can contribute to all tax-sheltered retirement plans that you have available to you. It's actually a more important factor than most people realize.
Despite the fact that the 401(k) contribution limits haven’t been increased in three years, the average person isn't coming close to maximize their potential contributions to retirement plans of all types. The 2017 maximum allocation for all plans is a very generous $54,000, and was the one 401(k) number that actually increased from 2016 to 2017.
That's the amount of money that you can contribute even beyond your 401(k) plan. For example, you can contribute up to $5,500 per year (or up to $6,500 if you are 50 or older) to an IRA, whether it is a traditional or Roth IRA. You may able to make tax-deductible contributions to a traditional IRA, or non-tax-deductible contributions to a Roth IRA, if your income is within the limits for either plan.
But even if your income exceeds the threshold to make a tax-deductible contribution – in addition to being covered by an employer plan – you can still make nondeductible contributions to a traditional IRA, regardless of your income.
That may not get you a tax deduction, but it will enable you to put more money into a retirement plan where your investment earnings will accumulate on a tax-deferred basis. A $5,500 IRA contribution, in addition to contributing $18,000 into a 401(k) plan, will increase your contribution to $23,500 per year.
But beyond IRAs, there are also several types of tax-sheltered retirement plans for the self-employed, including SEP and SIMPLE IRAs. If you have a side business, you can maintain these retirement plans for that business. They will allow you to contribute more money into a tax-sheltered plan. You can go as high as $54,000 total, which gives you plenty of room to make more contributions.
What We Can Expect of Contribution Limits in the Future
The good news is that we have been in a prolonged time of low inflation. That's good news in regard to the cost of living, even though it has kept a lid on maximum 401(k) contribution limits. Since that seems to be a long-term pattern, we should probably expect several more years of either low or nonexistent increases in the contribution limits.But that makes an even stronger case for maximizing the contributions that you make within the limits that we have, as well as investigating the possibility of contributing to the other retirement plans, such as IRAs or the various plans that are available for the self-employed.
We have to work within the limits that we have, and recognize that they are more than enough to help us reach our retirement goals. Those limits will allow us to do just that, even if they don't increase significantly in the future.
I have work for a few different companies, in which a 401K planned was offered and with that being said…I am wondering how do I get a grand total for all employers to find out what is the total on my 401K.
Hi Katrina – You should get annual statements from each plan. If you haven’t, locate some old statements, and ask each trustee for an updated statement. You also might look into either rolling those plans into your current 401k, or rolling them into an IRA. It’ll be easier to keep track of them in one place.
My husband is at retirement but wants to work 2 more years. He’s been working at a mine that just shut down and his job ended. This is Aug and he maxed out his contribution for his 401k at that company. He’s now started a new job that also has an employer 401k plan. Can he start contributing to that plan or does he have to wait til 2018. His employer will match up to 6%.
Thank you
Hi Denise – Unfortunately, the 401k contribution limits are per taxpayer, just like IRA contributions. So if your husband has maxed out his contributions for 2017 on the previous job, he’ll have to wait until 2018 to begin contributing again in the new plan.
On the maximum allocation, is that number specific to limits on self-employed retirement accounts or all retirement accounts? More specifically, if I am not self employed does that maximum allocation apply to me and how would I reach it. We’re a single income household and by contributing max 401k and Roth IRA max for my wife and myself, we are still well under the maximum allocation numbers in your article. Without self-employment, I just am unaware of other tax-advantaged retirement accounts that I could use to get toward the maximum allocation.
Hi Brett – That’s the maximum that can be contributed to all retirement plans in your behalf, whether through an employer plan, a self-employed plan, or a combination of plans. So if you and your employer have contributed $54,000 to your 401(k) plan, you will not be able to make an IRA contribution on top of that. Make sense?
That does make sense. The question that remains is that if I am NOT self-employed and have maxed my 401k and both mine and my wife’s IRA, what additional options are available to me (if any) under this $54k maximum? I could see being close to the max if we each had a 401k to contribute to, but we’re a single income household.
You can’t go any higher than what you’re allowed in the plans available to you. So if you’ve contributed $18k to your 401k and $5,500 to your IRA, that’s as high as you can go. The IRS max in all plans is $54k, but you’re also limited by the plans you participate in. If you want to contribute more, you can start a side business, and add a plan for that business, like a SIMPLE IRA or a Solo 401k.
Thank you so much for taking the time to provide that clarity.
Hi Jeff,
I am over 50 years old. I contribute to my work 401(K) and my personal Roth IRA. My 401 (K) has three parts: pre-tax contribution, post-tax contribution (allowed in my plan), and Employer Match. My questions are: 1) Dose 401 (K) contribution limit of $60000 ($54000+$6000) for 2017 include Employer Match? 2) If I max out my 401 (K) at $60000 (pre-tax, post-tax and match together), can I still contribute $6500 to my Roth IRA (not Roth 401 (K))?
Thank you very much!
Frank
Hi Frank – If you’re 50 or older, $60,000 is the absolute limit for 2017 from all sources, including the employer match. If you’ve already hit $60,000 in the 401(k) you won’t be eligible to contribute to any other plans, including a Roth IRA.
I am self employed and have a bookkeeping/tax business where I make around $30,000 per year. My wife has a corporate job and makes $300,000/yr. She contributes the max to her 401k including the >50 contribution. Can I open a SEP IRA in my name and make a contribution of 25% of my earnings ($7500/yr) or am I precluded from this due to income limitations?
Hi Andy – The IRA income limits apply only to traditional and Roth IRA contributions. A SEP IRA is linked to your business so yes you can. BTW, the effective contribution is really 20%, or $6,000 based on $30,000. The IRS has this neat calculation where you must reduce your income by the SEP deduction before taking the SEP deduction. Crazy, I know, but that’s the tax code that we all know and love…sometimes.
Hi Jeff ,
I’m 61 years old and am maxed out at work my 401k plus make up.
Can I contribute to a Roth outside my plan and how much for 2012 and 2013 ?
@Ernest What you put in your 401k is irrelevant. The Roth limits are subject to your AGI solely. If you’re below the limits you can contribute to a Roth IRA.
http://www.dailyfinance.com/2013/01/10/fiscal-cliff-deal-401k-bonus/
Any info on this new relax of old 401 conversion to roth regs?
“The Roth 401(k) has been around for more than a decade, but old tax laws blocked workers younger than 59½ from making the switch. Thanks to the new deal, that little stipulation will be gone in a few months”
We have been looking forward to a higher 401K limit each year and we are taking advantage of it! Thanks for sharing.
Hi Jeff Rose,
Great post. Its good to hear the good news that COLA numbers are increased a bit this year and there is no fear that limits will be lowered as 401k remains flat. Thanks for the information Jeff 🙂
Higher limits are one way to keep money away from Uncle Sam/IRS. Sadly as you have pointed out a lot of people don’t take advantage.
Also – like the pic. What kind of apeture did you use for that? Nice.
@ Andy My buddy is a professional photographer and he took the pic. That means I have no idea! 🙂
23 year old here- new to this 401k thing. I have a question, are employers allowed to add above the 17,000 limit? say you personally put in $17,000, can your employer match that, or is it a combined (personal and employer) cap?
Yes, they sure can. The $17,000 is your personal 401k limit, but does not include what your employer can put in. That’s the beauty of having a 401k with a good match.
Is there such a thing as a once in a life time contribution over and above your annual and catch contribution ?
When do they increase the levels for the IRA’s is my big question….Feel like we have been stuck for too long at the $5K max…
I might have the worst retirement account company, so I need space in my IRA’s to increase…
It is important that every person tries to contribute as much as they can to their 401(k) and work to reach that contribution limit. The more you save now, the better your chances to see your nest egg grow!
Jeff,
I just came across your website and have been reading up on retirement. Just wanted to mentioned you have a great site and this is all good points. I have been contributing to my 401k and have taken an aggressive approach since I’m still young and single. You say that when you turn 50 – there is a catch up contribution. Does this hold true if I already have money invested in my 401k. So, when I turn 50 or 51 instead of contributing $16,500 – I can invest 22,500, are there any rules on how much I can invest?
Thanks,
Dan
It would have been great if they had increased the limits, but to your point if inflation isn’t increasing it isn’t really needed. And as you mentioned, the people that to be contributing likely still have upside.